Tax reductions are not enough

ALTHOUGH we wouldn’t urge anyone to hold his or her breath, it does seem that the momentum in the Legislature is toward the passage of some version of a tax-reduction measure in the near future. It is an idea that has been rejected with stubborn consistency by President BS Aquino 3rd, whose first thought is, as always, for the benefits to be gained or lost for the government he temporarily leads, and not for the people and businesses of the Philippines.

A realignment of the current tax brackets, which would result in a more realistic withholding schedule and lower taxes for a vast number of low- and middle-income Filipinos, would be a welcome development, and it is an initiative that we have consistently supported. As wrong as we believe President Aquino to be on the issue, however, we have to acknowledge that in one small respect his objection to lowering taxes does make a valid point, although perhaps unintentionally.

Simply lowering taxes does not solve the fundamental problem with the Philippine tax structure, which is its excessive complexity. The tax reduction ideas that have been introduced, although we believe they are sincere, are all styled as the sort of populist measures that play well to the crowd in an election year, and do not address the issue of the faulty tax structure in any meaningful way.

The President and other Administration officials have pointed to an estimate of a P30 billion loss in government revenue as a reason not to push through with a tax reduction measure, but that is not really the biggest risk. The potential problem, we believe, is creating further confusion in a tax system that is already needlessly complicated and inefficient. While we remain firm in our belief that lowering taxes is the right move, we are not confident that the manner in which it is now being pursued is the right direction. That being the case, President Aquino may be ironically correct in suggesting that rapidly pushing through a tax measure will do more harm than good.

We would not suggest, however, that his “solution” – which is nothing more than “doing nothing” when it comes to taxes – is a viable option. Rather, the current push for easing the people’s tax burden should not be considered an accomplishment, but just a first step.

A complete, top-to-bottom overhaul of the entire tax system should be the real objective, with the current effort to reduce taxes simply being a stopgap measure to relieve the people’s immediate burden.

Tax reform is a big job; it will take time to complete, and require the input of skilled experts to complete it properly. Thus, it should be taken up by the new Congress after next May’s elections. In that context, it gives us one more yardstick with which to judge candidates for national offices. Those who are unwilling to take on the task of true tax reform or refuse to see the necessity of doing so should be rejected.